Amazon Supply Chain: 4 Things Brands Need to Know
Jake Rheude – Red Stag Fulfillment, July 21, 2020
There’s an incredibly complex set of movement and handoffs in the Amazon supply chain that happens behind the scenes each time someone clicks that Buy Box. The company has invested significantly in its fulfillment operations, making its focus on delivering goods as quickly as possible.
That unique drive has shaped our world and continues to move ecommerce forward, creating challenges and opportunities for vendors, sellers, manufacturers, and other partners. The mix of modes that goods travel is changing, and software is being used to shift how things are presented to customers to match sales with the inventory.
The Amazon supply chain is a large, well-oiled machine. However, it can also be challenging. Let’s look at some of its big news and recent trends.
1. Extensive distribution network is growing
Right now, Amazon says it has more than 175 fulfillment centers and 150 million square feet of space in operation. North America counts for 110 of those facilities and thousands of its own and partner-owned vehicles moving goods right now. It’s expansive and can reach the majority of U.S. citizens within two days, many in just one.
And it’s growing.
The company recently opened a fulfillment center in West Plains, is hiring in Dallas, and has unveiled details for its Marion County location. Some of these locations account for its surge of 175,000 temporary workers, while many existing fulfillment centers are having more staff to handle products, maintain safety measures, and keep the tech running.
Amazon also changes its pricing as it expands, but not always an increase. Sometimes, it shifts costs and expenses to help it encourage specific products, packaging, and more.
2. The mix of Amazon’s fleet
Amazon has a growing fleet designed to get products to customers and distribution centers quickly and affordably. Most people are familiar with the recent rise in Amazon-branded trucks on their streets, part of its own fleet and outsourcing partners. The company is also leasing 12 additional planes, to bring its count up to 82 by the end of 2021.
Amazon’s fleet is expected to be one of its more significant growth areas as the company fights more with FedEx and other carriers. Air allows it to move freight to fulfillment and sorting centers in that vast distribution network, and small airports are still dominating its layout both for access to these centers and to avoid the congestion that busy airports create.
For vendors and suppliers, the news is largely good. As Amazon grows, it’ll make more space and capabilities available to you. If you’re using FBA, then Amazon may position your goods more strategically around the U.S. to reach customers faster.
Building out its own large network of trucks and airplanes will help Amazon get more control around how it moves freight and, ultimately, how your goods get into the hands of consumers. The future likely involves a greater share of freight under Amazon’s own systems, which should come with greater protection for Prime sellers, but might also be paired with increased costs.
And if you’ve been especially successful with your own small fleet, there are opportunities to become part of Amazon’s logistics network and reduce the risk of excess space or idle trucks.
3. Amazon Supply chain standards to know
If you’re considering joining the Amazon supply chain as a supplier or manufacturer, you’ll have to meet a wide range of requirements. Most are fairly standard, while others require you need an understanding of how Amazon operations. Amazon wants you to be able to support its existing commitments, such as quality, and how it prefers to receive goods from you.
The company sets many country-specific sourcing requirements and can provide you with a sample audit to demonstrate what it is looking for from you.
Most suppliers will be able to easily meet Amazon’s requirements because it tends to follow a given country’s laws around labor rights, health and safety, environment, and ethical business practices. The complexity comes in its management requirements, where you’ll need to have software and business practices designed to track documentation, products, and data. Reporting includes the makeup of your workforce and power sources as well as any relevant worker engagement programs.
It’s one of the areas that gets little attention in most Amazon supply chain discussions, but it should be at the forefront of your mind if you want to start acting as a supplier and partner.
4. The seller-fulfilled waitlist
Seller Fulfilled Prime was a big draw for many larger ecommerce companies and third-party logistics companies (3PLs) because it offered the benefits of Prime with greater control of running your own warehouse. As long as you got products to people correctly and on-time, you were the sole holder of your destiny.
Unfortunately, SFP hasn’t been accepting new registrations for a while and has a growing waitlist. The slowdown has helped many 3PLs and warehouses who got early approval to generate a good bit of business. However, it has essentially been quite for over a year, which means that SFP is likely going to stay limited to larger ecommerce stores and 3PLs with an extensive network.
The restrictions help keep greater control over accuracy and quality in the Amazon supply chain, even if they’re not directly managing these goods.
Amazon’s efforts have pushed most to either work directly with FBA or these chosen partners. A few will look at Amazon’s Fulfillment by Merchant (FBM) when they can have long lead times or are growing and can’t yet afford all of the added costs of working with larger fulfillment companies.
While FBM can give you greater control, there are some reports that it lowers the likelihood that you’ll win the elusive Buy Box.
Balance opportunity and control
Even throughout the COVID-19 pandemic, we’ve seen Amazon grow its supply chain. More drivers and warehouse workers, new product lines, markets, and more have all happened in recent months. Amazon continues to present a growing opportunity, and the amount you buy-in can yield both gains and risks.
For example, sellers say it’s becoming easier to join Amazon’s Global Selling service. The company’s Build International Listings (BIL) tool can do much of the product work, allowing you to focus primarily on distribution rights and meeting country regulations. However, that’s balanced by you either needing to do your own international fulfillment or creating new agreements with Amazon to use its local fulfillment, such as European FBA.
There are chances for more immediate sales, but your business is further intertwined with Amazon and its supply chain. You’re expanding, but also giving up control in a variety of aspects — such as how to handle returns or manage some customer service.
Find the balance that works best for your company by looking at the products you sell, your own supply chain, and how you could fit within Amazon’s larger supply chain. There’s a mix that works right for you, but it’ll take time to determine.
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